March 4, 2009

The cost of US climate regulation

We've heard about the White House's plan to implement a carbon cap and trade (C&T) system under the EPA's proposed budget, and that has produced a flurry of mixed reactions, debate and economic implication forecasts.

I will try my best to understand some of this studies as trying to learn how the C&T system works sometimes makes my head spin.

According to consulting firm Point Carbon, the numbers crunched by White House's Office of Management and Budget for a carbon cap program is unrealistic and its estimated price for carbon allowances not reflecting the market's real price.

President Obama’s budget presumes a price for US carbon allowances at $13.70 in 2012. Presently, European Union Allowances (EUAs) are priced at €10.50 (US $13.35), according to Point Carbon.
“A carbon price of $13 per ton would produce an increase in the cost of gasoline of $0.12 per gallon, a six percent increase over current retail gasoline prices," said Point Carbon. "This would also result in a 6.8% increase for average retail electricity rates although more coal heavy regions might see higher increases."

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